“I can’t believe my friend in Montanita,” I said recently to another friend over a drink in a small bar in Manglaralto, a small town next to Montanita on the coast of Ecuador.
“He’s from the States, moved down here, bought a hotel and is running the business, but he doesn’t have a CLUE about doing business in Ecuador.” I continued.
Doing business in Ecuador is actually quite EASY comparatively to the USA.
But you gotta know the basics.
And hire a good local accountant, they don’t charge much, mine charges me around $35-50 a month.
But here’s 6 things you HAVE TO KNOW before you start a business in Ecuador. ALL of which my buddy who was already actively doing business in Ecuador had no clue about and was not doing!
1. First, if you buy a business or a property with a business attached, i.e. a hotel, have the previous owner fire all the current employees before you start, you can hire one or two of them back if you want, but don’t just keep them on, because when you fire people in Ecuador you have to pay them quite hefty “liquidation payments” based on how long they’ve worked for you so be sure the previous owner takes care of that before you get on.
2. Next thing know you MUST affiliate all your employees to the IESS social security system and pay a percentage of their wage to said organism every month. Even part-time employees, the only exception is when hiring contract work in which case ask for the factura or official receipt for the work rendered.
3. Also, know that any business must get a tax ID number called a RUC (foreigners can get one) and then you must give all your clients official receipts for their purchase based off the RUC called FACTURAS on which you charge the 12% sales tax called IVA, and once a month declare with the help of an accountant your sales and expenses and pay the sales tax you collected on the difference.
4. Permits while generally easy to attain in Ecuador are necessary, inquire at your local Municipal which are necessary for your specific business type.
5. There is an income tax in Ecuador called IMPUESTO A LA RENTA that needs to be declared and paid every March. It’s much lower than in the USA and for most income brackets it’s less than or around 15%. Ask accountant for assistance.
6. You must pay employees two bonus payments yearly, one equal to the minimum wage in August (which hovers around $400) and one equal to their monthly salary in December. You must make them sign a document (ROL DE PAGOS) once you pay them that your local accountant can give you upon request.
That’s it! Know that, hire an accountant for the particulars and your off to a great start!